With prices down, investors again turning homes into profits

Saturday

Jul 24, 2010 at 12:01 AMJul 24, 2010 at 4:45 PM

In the midst of all this chaos, one group of people continues to mine gold from the local housing market. They are house flippers, who buy properties cheap and then resell them quickly for a tidy profit.

By Fred HiersStaff writer

The problems with the local real estate market are well documented: Property values are plummeting, foreclosures are skyrocketing and many homeowners are upside down on their mortgages, meaning they owe more than the property is worth.Yet in the midst of all this chaos, one group of people continues to mine gold from the local housing market. They are house flippers, who buy properties cheap and then resell them quickly for a tidy profit.The housing bust, which saw property values drop by more than 40 percent during the past four years, is working to their advantage.For investors like Amy Agricola, there is no shortage of houses to buy cheap.Nearly 400 foreclosed properties are listed with the Marion County Clerk of the Circuit Court to be sold during the next 30 days. Many more will be added before the auctions start, creating a target-rich environment for the wise investor.Agricola had come back to the United States after years of buying and selling horses to compete in hunter/jumper competitions. In early 2006, the single mother of three planned to do the same in Ocala.After two years of renting a home, the 47-year-old Agricola was ready to buy a house of her own and use her savings to pay for it. Eventually her Realtor, Aaron Churnick, helped Agricola find a four-bedroom, three-bath home on nearly three acres. It was scheduled to go to foreclosure auction.

View Single-family home sales in a larger map
Map created by Lise Fisher.

During the housing boom, the county Property Appraiser's Office set its market value at more than $281,000."We went to look at it and it was an amazing opportunity," Agricola said.But she needed more land for her three horses. So, instead, she bought the property as an investment for $82,000, made some improvements to the Southeast 41st Court property, and sold it nine months later for $199,900.The purchase had depleted her savings, but the profits whetted her appetite for real estate.Until the sale, Agricola had been dipping into her savings to make ends meet. The market for horses wasn't what it was a few years before.But she has bought four properties during the past 18 months and is putting the horse sales business on the back burner.Churnick, her real estate agent, said the housing market is still a good place to make money, but it's no longer a place for amateurs."If you know the market well enough and you know where the next hot area is, and you can find a good deal, then buy," he said.The key, he said, is to not hold the property too long."I know what the property is worth today. I know what it's going to be worth in 30 days," he said. "And my goal is to sell it in 30 days."While that sounds simple enough, it's where good Realtors and bad ones get separated.Before bidding on a house at auction or making an offer to people wanting to get out of their mortgage, Churnick said he does his homework, and lots of it.He spends about 20 hours a week scouring public records and finding homes that might be had for a lot less than they were originally bought. Then he puts in another 20 hours evaluating neighborhoods for his clients.

"Then I start work," he said, laughing. "Most people are willing to work only 40 hours. So now you're finished doing your job, and you start your job."Traditional Realtors aren't going to put that kind of time into the job, he said, and that's why so many former Realtors are out of work or twiddling their thumbs.Churnick looks mostly to buy houses in the $50,000 to $60,000 price range. He and his clients invest enough money to fix them up and sell them at a profit."The margins are thinner (than with more costly homes) but they're out there," he said. "I'm making a really good living now."Churnick said he has put together about 35 such deals for clients during the past six months.Although single-family home sales aren't at 2005 and 2006 levels, properties are changing hands. In May, 428 single-family homes changed hands in Marion County, according to Marion County Property Appraiser records. That was 22 more than the same month in 2009 and 53 more than the same month in 2008. During the housing boom, May sales were about 1,000.Agricola hopes to buy and sell six or eight properties during the next year, up from the four she bought and sold in the past year and a half. But she is considered mostly a dabbler in the foreclosure market; swimming alongside her in the foreclosure waters are some big fish.David Midgett's goal is to buy 100 properties a year. He will flip many. Some he will rent for a steady income stream. Almost all will be distressed properties, foreclosures and bank-owned homes. He is a local real estate lawyer and part owner of Redfish Properties LLC."During the boom it was easy to buy and sell ... If you held onto (property) for a few months, you made money," he said.Midgett said during the housing boom he mostly bought rental properties instead of flipping them, "primarily because I didn't understand why (property) values were going up that way."

By 2008, when the county's housing bust was well under way, single-family home values were in free fall and many of the amateur speculators went broke.There's a difference, he said, between those speculators and what he does now as an investor, Midgett said.Investors buy properties, improve them and resell them at a profit. Speculators buy properties and wait for market forces to drive up their values, then sell them at a profit.Buying foreclosed properties isn't for the timid. For one thing, full payment is required at the time of sale. Another is that bidders aren't allowed to walk through the house they want to buy. The properties stay locked."So you're buying a pig in a poke," he said.Many times the former homeowners, angry over their evictions, take anything not nailed down. Many of the homes Midgett buys are without air conditioners, water heaters or appliances.One former owner of a home Midgett bought took the bathtub, kitchen cabinets, counter tops and even its light switches.Midgett said he tries to buy three-bedroom, two-bath houses, because they can be rented or sold and are suitable for both first-time homebuyers with families and retiring couples moving to Florida from the north.And just like Churnick, Midgett said his goal is to always sell his properties within 30 days. He said that's because he can't predict the market and what the property will be worth after that."All I know is that it's not going to do what it's done in the last six months," he said.

Once he does put the house on the market, he advertises it as foreclosed property. That's because many buyers think that foreclosed properties will cost them less than a new home. For the most part, Midgett said, they're right: He'll buy a foreclosed home, fix it up and resell if for $100,000; the same house would cost between $140,000 and $150,000 new.Midgett said there's plenty of risk in his business. What he's most afraid of now is that banks are holding off bringing their troubled properties to foreclosure auctions. When they eventually bring them to auction, they'll flood the market and drive prices even further down and bring more instability to the market.That instability has been evident to Mike McVey, Marion County's assistant property appraiser."You can see what's happening. The market now, there's no consistency," he said. "We might see a house sell for $130,000 and a house just like it, same size, sells for $80,000."For appraisal purposes, the Property Appraiser's Office doesn't usually qualify a foreclosure sale in its records, but rather sets its value, for property tax purposes, closer to where other, more traditional sales came in.The foreclosure sales are rocking the market now almost as much as the buying frenzy did three years ago, he said.But as unemployment continues to hover near 14 percent in Marion County and the stream of foreclosures continues unabated, McVey predicts foreclosures can't be stopped from more strongly influencing the values he sets for properties.If the only sales in a given neighborhood are foreclosures, he said, "then foreclosures are the market."The foreclosures' impact on sales prices are apparent. In May, Ocala had the steepest sales price decline in Florida, according to Florida Realtors, and the steepest increase in home sales in the state.The median price - with half selling for more and half for less - was $96,700, down 13 percent from $111,600 a year ago. The median price was also down from April's $99,800.

Many business people have used the foreclosure market to diversify. William Petenbrink, owner of Custom Homes of Ocala, doesn't sell just prefabricated homes. He also sells about 45 site-built homes a year that he buys at auction or from people who can no longer afford them.During the housing boom, many people were looking for ever bigger houses. Now, people want more modest, mid-sized, three-bedroom homes, he said."People just aren't buying big houses any more," he said.Although the recession has scared off many investors, he buys and sells more properties than he did during the boom.His strategy is similar to most other investors': He bids on the homes he wants, based on what he thinks they'll be worth in 30 to 60 days - 90 at the most.Bert Meadows, former president of the Marion County Association of Realtors, said real estate has changed. If Realtors want to stay in business they must adapt.That includes sifting through short sales and foreclosures to find clients the best deals, he said.But Realtors shouldn't give up conventional sales tactics, like getting referrals and sending out mailers and sticking door hangers on houses, Meadows said.Realtors are also working with investors more who are depending on Realtors to find them distressed or foreclosed properties selling far below market values.About 25 percent more of Meadows' clients are having to depend on sellers to do owner financing than just a few years ago, he said.

Meadows said in this recession, gone are the days when a Realtor could earn a living sitting in his office waiting for prospective buyers to call. And so are the days when buyers were willing to pay top dollar for a house, as they did during the boom.But to make money, investors eventually have to sell to an end user. Some plan to live in the house they buy; others hope to resell in a few years. Still others like Whitney Frye, owner of Lucky Old SSN, LLC, will rent them. Frye bought 10 homes in May for between $69,000 and $139,000 and hopes to rent them.Petenbrink, Agricola and Midgett had each sold properties to Lucky Old SSN.Don Odom said he plans to stay in the home he bought last year from Agricola. The restaurateur and his wife moved here from Orlando and were looking for a home with enough acreage for their horses. What they found would turn out to be Agricola's first flip. They bought it for $199,000."For the money, we're very happy," Odom said. "In the boom, I think it would have gone for $300,000 to $330,000. We couldn't have afforded it."Odom doesn't begrudge Agricola the hefty profit she made off him."I don't look at it that way," he said. "I don't kick myself in the butt over it. It's good she got a good deal ... because I know I got a good deal, too."Fred Hiers can be reached at fred.hiers@starbanner.com and 867-4157.

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